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Jae Jun | Old School Valuemail questions or comments to: jjun0366@gmail.com

www.oldschoolvalue.com

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Company Name ticker

Microsoft Corp www.oldschoolvalue.com

9/21/2009 Figures in Millions except per share values

Current Price

Total Net Reprod. Cost 4.63$ EPV 24.36$ DCF Price 27.91$ Graham Price 30.04$ 25.26$

Reprod. Cost of Assets BV 7.38$ Normalized Income 19,259.53$ Growth Rate 9% Growth Rate 14%

Tangible BV 3.09$ Discount Rate 9% Discount Rate 9% Normalized EPS 1.01$

NNWC 0.56$ Margin of Safety 0% Margin of Safety 9% Margin of Safety 16%

Market Cap (millions) 225,080 Quick Ratio (MRQ) 1.8 Gross (TTM) 79.2 Operating (TTM) 33.56 Net Profit (TTM) 24.93

52-Week High 27.66 Current Ratio (MRQ) 1.82 Gross - 5 Yr. Avg. 81.06 Operating - 5 Yr. Avg. 36.03 Net Profit - 5 Yr. Avg. 28.01

52-Week Low 14.87 LT Debt to Equity (MRQ) 9.47 EBITD (TTM) 37.94 Pre-Tax (TTM) 33.92

% off 52-Week Low 69.9% Total Debt to Equity (MRQ) 14.53 EBITD - 5 Yr. Avg. 38.98 Pre-Tax - 5 Yr. Avg. 38.82

P/E Ratio (TTM) 15.59 Sales (MRQ) vs Qtr. 1 Yr. Ago -17.29 ROA (TTM) 19.34 Revenue/Employee (TTM) 628355

Price to Sales (TTM) 3.85 Sales (TTM) vs TTM 1 Yr. Ago 3.85 ROA - 5 Yr. Avg. 19.63 Net Income/Employee (TTM) 156656

Price to Book (MRQ) 5.69 Sales - 5 Yr. Growth Rate 9.67 ROI (TTM) 31.08 Receivable Turnover (TTM) 4.72

Price to Tangible Book (MRQ) 8.9 EPS (MRQ) vs Qtr. 1 Yr. Ago -25.55 ROI - 5 Yr Avg 28.63 Inventory Turnover (TTM) 14.28

Price to Cash Flow (TTM) 13.14 EPS (TTM) vs TTM 1 Yr. Ago -13.36 ROE (TTM) 38.42 Asset Turnover (TTM) 0.78

Price to Free Cash Flow (TTM) 19.66 EPS - 5 Yr. Growth Rate 16.65 ROE - 5 Yr. Avg. 33.44

Enterprise Value/Revenue (TTM) 3.44 Capital Spending - 5 Yr. Grwth 22.98

Enterprise Value/EBITDA (TTM) 8.636

Multi-Year Performance

2000-2007 2001-2008 2002-2009 2000-2005 2001-2006 2002-2007 2003-2008 2004-2009

Shareholder Equity -6.7% -10.2% -9.4% 1.4% -5.5% -12.8% -17.3% -18.7%

Free Cash Flow 5.2% 11.4% 8.1% 5.8% 8.9% 10.2% 9.4% 11.2%

CROIC 19.4% 20.8% 26.2% 16.6% 16.6% 20.8% 26.2% 33.1%

FCF/Sales 29.7% 28.1% 27.2% 30.8% 29.7% 27.8% 27.2% 26.4%

ROA 14.3% 14.3% 16.5% 13.4% 13.4% 14.3% 16.5% 18.6%

ROE 18.8% 18.8% 24.2% 17.1% 17.1% 18.8% 24.2% 33.5%

Revenue Growth 12.1% 13.2% 10.9% 11.6% 11.8% 12.5% 13.4% 9.7%

Gross Margin 82.5% 82.1% 81.7% 83.4% 82.5% 82.1% 82.1% 81.3%

Operating Margin 39.1% 37.2% 36.9% 41.5% 39.1% 36.9% 36.9% 36.4%

Net Margin 28.7% 28.7% 28.0% 29.9% 28.7% 28.0% 28.9% 28.0%

Earnings Growth 7.6% 16.0% 12.5% 5.7% 12.7% 14.9% 15.2% 16.7%

Cash from Ops Growth 3.5% 7.0% 4.0% 3.5% 1.4% 4.2% 6.5% 5.4%

MSFT

Microsoft Corporation is engaged in developing, manufacturing, licensing, and supporting a range of software products and services for different types of computing devices. The Company operates in five business

segments: Client, Server and Tools, Online Services Business, Microsoft Business Division, and Entertainment and Devices Division. The software products and services include operating systems for servers, personal

computers, and intelligent devices; server applications for distributed computing environments; information worker productivity applications; business solutions applications; computing applications; software

development tools, and video games. The Company provide consulting and product and solution support services, and trains and certifies computer system integrators and developers. It also designs and sells

hardware, including Xbox 360 video game console, the Zune digital music and entertainment device, and peripherals.

DCF ValuationAsset Valuation Graham ValuationEPV Valuation

Key Statistics Financial Strength Margins & Profitability

Valuation Ratios Growth Stats Management Effective Efficiency

Historical Stock Price Vs Intrinsic Value Per Share

Median

-9.8%

9.2%

20.8%

27.9%

13.8%

4.1%

14.3%

18.8%

12.0%

82.1%

37.1%

28.7%

0

10

20

30

40

50

60

9/28/1998 9/28/1999 9/28/2000 9/28/2001 9/28/2002 9/28/2003 9/28/2004 9/28/2005 9/28/2006 9/28/2007 9/28/2008

Historical Price

Intrinsic Value

Buy Price

Margin Percentages

Free Cash Flow vs Tangible Shareholder Equity Trend Efficiency & Profitability

Sales vs Accounts Receivables CAPEX vs PPE

86.9% 86.3%81.7% 82.3% 81.8%

84.4% 82.7%79.1% 80.8% 79.2%

47.6% 46.3%42.0% 41.1%

24.5%

36.6% 37.2% 36.2% 37.2% 34.8%

41.0%

29.0% 27.6%31.0%

22.2%

30.8% 28.5% 27.5% 29.3%24.9%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

90.0%

100.0%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Gross Margin

Operating Margin

Net Margin

$-

$10,000.0

$20,000.0

$30,000.0

$40,000.0

$50,000.0

$60,000.0

$70,000.0

$80,000.0

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

FCF

Shareholder Equity

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

CROIC

FCF/Sales

ROA

ROE

$-

$10,000.0

$20,000.0

$30,000.0

$40,000.0

$50,000.0

$60,000.0

$70,000.0

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 TTM

Sales

Accts Receivable

Inventory

$-

$1,000.0

$2,000.0

$3,000.0

$4,000.0

$5,000.0

$6,000.0

$7,000.0

$8,000.0

$9,000.0

$10,000.0

2003 2004 2005 2006 2007 2008 2009 TTM

Last 6 yrs

Last 5 yrs

Last 4 yrs

Last 3 yrs

Last 2 yrs

Last 1 yr

PPE

9/21/2009 Figures in Millions except per share values

MSFT 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 TTM

Revenue 22,956.0$ 25,296.0$ 28,365.0$ 32,187.0$ 36,835.0$ 39,788.0$ 44,282.0$ 51,122.0$ 60,420.0$ 58,437.0$ 58,437.0$

COGS 3,002.0$ 3,455.0$ 5,191.0$ 5,686.0$ 6,716.0$ 6,200.0$ 7,650.0$ 10,693.0$ 11,598.0$ 12,155.0$ 12,155.0$

COGS (%) 13.1% 13.7% 18.3% 17.7% 18.2% 15.6% 17.3% 20.9% 19.2% 20.8% 20.8%

Gross Profit 19,954.0$ 21,841.0$ 23,174.0$ 26,501.0$ 30,119.0$ 33,588.0$ 36,632.0$ 40,429.0$ 48,822.0$ 46,282.0$ 46,282.0$

Gross Profit (%) 86.9% 86.3% 81.7% 82.3% 81.8% 84.4% 82.7% 79.1% 80.8% 79.2% 79.2%

SG&A 5,150.0$ 5,742.0$ 6,957.0$ 8,625.0$ 13,306.0$ 12,843.0$ 13,576.0$ 14,784.0$ 18,166.0$ 16,909.0$ 16,909.0$

SG&A (%) 22.4% 22.7% 24.5% 26.8% 36.1% 32.3% 30.7% 28.9% 30.1% 28.9% 28.9%

R&D 3,775.0$ 4,379.0$ 4,307.0$ 4,659.0$ 7,779.0$ 6,184.0$ 6,584.0$ 7,121.0$ 8,164.0$ 9,010.0$ 9,010.0$

R&D (%) 16.4% 17.3% 15.2% 14.5% 21.1% 15.5% 14.9% 13.9% 13.5% 15.4% 15.4%

Other 92.0$ -$ -$ -$ -$ -$ -$ -$ -$ -$ -$

Other (%) 0.4% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%

Operating Income 10,937.0$ 11,720.0$ 11,910.0$ 13,217.0$ 9,034.0$ 14,561.0$ 16,472.0$ 18,524.0$ 22,492.0$ 20,363.0$ 20,363.0$

Operating Income (%) 47.6% 46.3% 42.0% 41.1% 24.5% 36.6% 37.2% 36.2% 37.2% 34.8% 34.8%

Net Int Inc & Other 3,338.0$ (195.0)$ (397.0)$ 1,509.0$ 3,162.0$ 2,067.0$ 1,790.0$ 1,577.0$ 1,322.0$ (542.0)$ (542.0)$

Earnings Before Taxes 14,275.0$ 11,525.0$ 11,513.0$ 14,726.0$ 12,196.0$ 16,628.0$ 18,262.0$ 20,101.0$ 23,814.0$ 19,821.0$ 19,821.0$

Income Taxes 4,854.0$ 3,804.0$ 3,684.0$ 4,733.0$ 4,028.0$ 4,374.0$ 5,663.0$ 6,036.0$ 6,133.0$ 5,252.0$ 5,252.0$

Tax Rate % 34.0% 33.0% 32.0% 32.1% 33.0% 26.3% 31.0% 30.0% 25.8% 26.5% 26.5%

Earnings After Taxes 9,421.0$ 7,721.0$ 7,829.0$ 9,993.0$ 8,168.0$ 12,254.0$ 12,599.0$ 14,065.0$ 17,681.0$ 14,569.0$ 14,569.0$

Acctg Changes -$ (375.0)$ -$ -$ -$ -$ -$ -$ -$ -$ -$

Disc Operations -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ -$

Ext Items -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ -$

Net Income 9,421.0$ 7,346.0$ 7,829.0$ 9,993.0$ 8,168.0$ 12,254.0$ 12,599.0$ 14,065.0$ 17,681.0$ 14,569.0$ 14,569.0$

Net Income (%) 41.0% 29.0% 27.6% 31.0% 22.2% 30.8% 28.5% 27.5% 29.3% 24.9% 24.9%

Diluted EPS, Cont Ops$ 0.9$ 0.7$ 0.7$ 0.9$ 0.8$ 1.1$ 1.2$ 1.4$ 1.9$ 1.6$ 1.6$

Diluted EPS$ 0.9$ 0.7$ 0.7$ 0.9$ 0.8$ 1.1$ 1.2$ 1.4$ 1.9$ 1.6$ 1.6$

Shares 11072 11148 11106 10882 10894 10906 10531 9886 9470 8996 8910

Cash and Equiv 4,846.0$ 3,922.0$ 3,016.0$ 6,438.0$ 15,982.0$ 4,851.0$ 6,714.0$ 6,111.0$ 10,339.0$ 6,076.0$ 6,076.0$

Short-Term Investments 18,952.0$ 27,678.0$ 35,636.0$ 42,610.0$ 44,610.0$ 32,900.0$ 27,447.0$ 17,300.0$ 13,323.0$ 25,371.0$ 25,371.0$

Accts Rec 3,250.0$ 3,671.0$ 5,129.0$ 5,196.0$ 5,890.0$ 7,180.0$ 9,316.0$ 11,338.0$ 13,589.0$ 11,192.0$ 11,192.0$

Inventory -$ -$ 673.0$ 640.0$ 421.0$ 491.0$ 1,478.0$ 1,127.0$ 985.0$ 717.0$ 717.0$

Other Current Assets 3,260.0$ 4,366.0$ 4,122.0$ 4,089.0$ 3,663.0$ 3,315.0$ 4,055.0$ 4,292.0$ 5,006.0$ 5,924.0$ 5,924.0$

Total Current Assets 30,308.0$ 39,637.0$ 48,576.0$ 58,973.0$ 70,566.0$ 48,737.0$ 49,010.0$ 40,168.0$ 43,242.0$ 49,280.0$ 49,280.0$

Net PP&E 1,903.0$ 2,309.0$ 2,268.0$ 2,223.0$ 2,326.0$ 2,346.0$ 3,044.0$ 4,350.0$ 6,242.0$ 7,535.0$ 7,535.0$

Intangibles -$ -$ 1,669.0$ 3,512.0$ 3,684.0$ 3,808.0$ 4,405.0$ 5,638.0$ 14,081.0$ 14,262.0$ 14,262.0$

Other Long-Term Assets 19,939.0$ 17,311.0$ 15,133.0$ 14,863.0$ 15,813.0$ 15,924.0$ 13,138.0$ 13,015.0$ 9,228.0$ 6,811.0$ 6,811.0$

Total Assets 52,150.0$ 59,257.0$ 67,646.0$ 79,571.0$ 92,389.0$ 70,815.0$ 69,597.0$ 63,171.0$ 72,793.0$ 77,888.0$ 77,888.0$

Accts Payable 1,083.0$ 1,188.0$ 1,208.0$ 1,573.0$ 1,717.0$ 2,086.0$ 2,909.0$ 3,247.0$ 4,034.0$ 3,324.0$ 3,324.0$

Short-Term Debt -$ -$ -$ -$ -$ -$ -$ -$ -$ 2,000.0$ 2,000.0$

Taxes Payable 585.0$ 1,468.0$ 2,022.0$ 2,044.0$ 3,478.0$ 2,020.0$ 1,557.0$ 1,040.0$ 3,248.0$ 725.0$ 725.0$

Accrued Liabilities 557.0$ 742.0$ 7,065.0$ 8,641.0$ 7,853.0$ 9,164.0$ 11,076.0$ 2,325.0$ 2,934.0$ 3,156.0$ 3,156.0$

Other Short-Term

Liabilities 7,530.0$ 7,734.0$ 2,449.0$ 1,716.0$ 1,921.0$ 3,607.0$ 6,900.0$ 17,142.0$ 19,670.0$ 17,829.0$ 17,829.0$

Total Current Liabilities 9,755.0$ 11,132.0$ 12,744.0$ 13,974.0$ 14,969.0$ 16,877.0$ 22,442.0$ 23,754.0$ 29,886.0$ 27,034.0$ 27,034.0$

Long-Term Debt -$ -$ -$ -$ -$ -$ -$ -$ -$ 3,746.0$ 3,746.0$

Other Long-Term

Liabilities 1,027.0$ 836.0$ 2,722.0$ 4,577.0$ 2,595.0$ 5,823.0$ 7,051.0$ 8,320.0$ 6,621.0$ 7,550.0$ 7,550.0$

Total Liabilities 10,782.0$ 11,968.0$ 15,466.0$ 18,551.0$ 17,564.0$ 22,700.0$ 29,493.0$ 32,074.0$ 36,507.0$ 38,330.0$ 38,330.0$

Total Equity 41,368.0$ 47,289.0$ 52,180.0$ 61,020.0$ 74,825.0$ 48,115.0$ 40,104.0$ 31,097.0$ 36,286.0$ 39,558.0$ 39,558.0$

Total Liabilities & Equity 52,150.0$ 59,257.0$ 67,646.0$ 79,571.0$ 92,389.0$ 70,815.0$ 69,597.0$ 63,171.0$ 72,793.0$ 77,888.0$ 77,888.0$

Liabilities & Stockholders' Equity

Financial Data

Microsoft Corp

Company Name

Income Statement

Operating Expenses

Other Income and Expense

ticker

MSFT

Assets

Balance Sheet

Net Income 9,421.0$ 7,346.0$ 7,829.0$ 9,993.0$ 8,168.0$ 12,254.0$ 12,599.0$ 14,065.0$ 17,681.0$ 14,569.0$ 14,569.0$

Depr & Amort 748.0$ 1,536.0$ 1,084.0$ 1,439.0$ 1,186.0$ 855.0$ 903.0$ 1,440.0$ 2,056.0$ 2,562.0$ 2,562.0$

Deferred Taxes -$ (420.0)$ (416.0)$ 336.0$ (1,479.0)$ (179.0)$ 219.0$ 421.0$ 935.0$ 762.0$ 762.0$

Other 3,792.0$ 4,960.0$ 6,012.0$ 4,029.0$ 6,751.0$ 3,675.0$ 683.0$ 1,870.0$ 940.0$ 1,144.0$ 1,144.0$

Cash from Operations 13,961.0$ 13,422.0$ 14,509.0$ 15,797.0$ 14,626.0$ 16,605.0$ 14,404.0$ 17,796.0$ 21,612.0$ 19,037.0$ 19,037.0$

Cap Ex (879.0)$ (1,103.0)$ (770.0)$ (891.0)$ (1,109.0)$ (812.0)$ (1,578.0)$ (2,264.0)$ (3,182.0)$ (3,119.0)$ (3,119.0)$

Purchase of Business -$ -$ -$ (1,063.0)$ (4.0)$ (207.0)$ (649.0)$ (1,150.0)$ (8,053.0)$ (868.0)$ (868.0)$

Other (11,048.0)$ (7,631.0)$ (10,075.0)$ (5,259.0)$ (1,632.0)$ 16,046.0$ 10,230.0$ 9,503.0$ 6,648.0$ (11,783.0)$ (11,783.0)$

Cash from Investing (11,927.0)$ (8,734.0)$ (10,845.0)$ (7,213.0)$ (2,745.0)$ 15,027.0$ 8,003.0$ 6,089.0$ (4,587.0)$ (15,770.0)$ (15,770.0)$

Net Issuance of Stock (2,651.0)$ (4,454.0)$ (4,572.0)$ (4,366.0)$ (635.0)$ (4,948.0)$ (17,106.0)$ (20,793.0)$ (9,039.0)$ (8,722.0)$ (8,722.0)$

Net Issuance of Debt -$ -$ -$ -$ -$ -$ -$ -$ -$ 5,974.0$ 5,974.0$

Dividends (13.0)$ -$ -$ (857.0)$ (1,729.0)$ (36,112.0)$ (3,545.0)$ (3,805.0)$ (4,015.0)$ (4,468.0)$ (4,468.0)$

Other 472.0$ (1,132.0)$ -$ -$ -$ (18.0)$ 89.0$ 54.0$ 120.0$ (247.0)$ (247.0)$

Cash from Financing (2,192.0)$ (5,586.0)$ (4,572.0)$ (5,223.0)$ (2,364.0)$ (41,078.0)$ (20,562.0)$ (24,544.0)$ (12,934.0)$ (7,463.0)$ (7,463.0)$

Currency Adj 29.0$ (26.0)$ 2.0$ 61.0$ 27.0$ (7.0)$ 18.0$ 56.0$ 137.0$ (67.0)$ (67.0)$

Change in Cash (158.0)$ (898.0)$ (908.0)$ 3,361.0$ 9,517.0$ (9,446.0)$ 1,845.0$ (659.0)$ 4,228.0$ (4,263.0)$ (4,263.0)$

Cash from Operations 13,961.0$ 13,422.0$ 14,509.0$ 15,797.0$ 14,626.0$ 16,605.0$ 14,404.0$ 17,796.0$ 21,612.0$ 19,037.0$ 19,037.0$

Cap Ex (879.0)$ (1,103.0)$ (770.0)$ (891.0)$ (1,109.0)$ (812.0)$ (1,578.0)$ (2,264.0)$ (3,182.0)$ (3,119.0)$ (3,119.0)$

Free Cash Flow 9,290.0$ 7,779.0$ 8,143.0$ 10,541.0$ 8,245.0$ 12,297.0$ 11,924.0$ 13,241.0$ 16,555.0$ 14,012.0$ 14,012.0$

Book Value Per Share 3.74$ 4.24$ 4.70$ 5.61$ 6.87$ 4.41$ 3.81$ 3.15$ 3.83$ 4.40$ 4.44$

Free Cash Flow

Cash Flows Statement

Cash Flows From Operating Activities

Cash Flows From Investing Activities

Cash Flows From Financing Activities

www.oldschoolvalue.com

9/21/2009 User Growth Figures in Millions except per share values

Desired MOS Growth Discount % Price Share Value Buy under Actual D/C % 52Wk High 52Wk Low

50% 9.2% 9.0% 25.26$ 27.91$ 13.95$ 9% $27.66 $14.87

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Revenue 22,956.0$ 25,296.0$ 28,365.0$ 32,187.0$ 36,835.0$ 39,788.0$ 44,282.0$ 51,122.0$ 60,420.0$ 58,437.0$

Gross Profit 19,954.0$ 21,841.0$ 23,174.0$ 26,501.0$ 30,119.0$ 33,588.0$ 36,632.0$ 40,429.0$ 48,822.0$ 46,282.0$

Operating Income 10,937.0$ 11,720.0$ 11,910.0$ 13,217.0$ 9,034.0$ 14,561.0$ 16,472.0$ 18,524.0$ 22,492.0$ 20,363.0$

Net Income 9,421.0$ 7,346.0$ 7,829.0$ 9,993.0$ 8,168.0$ 12,254.0$ 12,599.0$ 14,065.0$ 17,681.0$ 14,569.0$

Diluted EPS 0.9$ 0.7$ 0.7$ 0.9$ 0.8$ 1.1$ 1.2$ 1.4$ 1.9$ 1.6$

Cash from Operations 13,961.0$ 13,422.0$ 14,509.0$ 15,797.0$ 14,626.0$ 16,605.0$ 14,404.0$ 17,796.0$ 21,612.0$ 19,037.0$

Free Cash Flow 9,290.0$ 7,779.0$ 8,143.0$ 10,541.0$ 8,245.0$ 12,297.0$ 11,924.0$ 13,241.0$ 16,555.0$ 14,012.0$

Capex 879.0$ 1,103.0$ 770.0$ 891.0$ 1,109.0$ 812.0$ 1,578.0$ 2,264.0$ 3,182.0$ 3,119.0$

Current Assets 30,308.0$ 39,637.0$ 48,576.0$ 58,973.0$ 70,566.0$ 48,737.0$ 49,010.0$ 40,168.0$ 43,242.0$ 49,280.0$

Current Liabilities 9,755.0$ 11,132.0$ 12,744.0$ 13,974.0$ 14,969.0$ 16,877.0$ 22,442.0$ 23,754.0$ 29,886.0$ 27,034.0$

Total Liabilities 10,782.0$ 11,968.0$ 15,466.0$ 18,551.0$ 17,564.0$ 22,700.0$ 29,493.0$ 32,074.0$ 36,507.0$ 38,330.0$

Tangible Shareholder Equity 41,368.0$ 47,289.0$ 50,511.0$ 57,508.0$ 71,141.0$ 44,307.0$ 35,699.0$ 25,459.0$ 22,205.0$ 25,296.0$

Gross Margin 86.9% 86.3% 81.7% 82.3% 81.8% 84.4% 82.7% 79.1% 80.8% 79.2%

Operating Margin 47.6% 46.3% 42.0% 41.1% 24.5% 36.6% 37.2% 36.2% 37.2% 34.8%

Net Margin 41.0% 29.0% 27.6% 31.0% 22.2% 30.8% 28.5% 27.5% 29.3% 24.9%

Current Assets>1.5 times 310.7% 356.1% 381.2% 422.0% 471.4% 288.8% 218.4% 169.1% 144.7% 182.3%

CROIC 21.9% 16.2% 15.3% 17.0% 11.2% 24.5% 27.9% 39.2% 57.4% 38.3%

FCF/Sales 40.5% 30.8% 28.7% 32.7% 22.4% 30.9% 26.9% 25.9% 27.4% 24.0%

Inventory Turnover 7.7 8.9 16.0 12.6 5.2 9.5 11.8 17.0

Return On Assets (ROA) 21.1% 13.2% 12.3% 13.6% 9.5% 15.0% 18.0% 21.2% 26.0% 19.3%

Retun On Equity (ROE) 27.4% 16.6% 15.7% 17.7% 12.0% 19.9% 28.6% 39.5% 52.5% 38.4%

Debt to Equity 26.1% 25.3% 29.6% 30.4% 23.5% 47.2% 73.5% 103.1% 100.6% 96.9%

Capitalization Ratio 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 8.7%

FCF to Debt 86.2% 65.0% 52.7% 56.8% 46.9% 54.2% 40.4% 41.3% 45.3% 36.6%

2000-2007 2001-2008 2002-2009 2000-2005 2001-2006 2002-2007 2003-2008 2004-2009

Shareholder Equity -6.7% -10.2% -9.4% 1.4% -5.5% -12.8% -17.3% -18.7%

Free Cash Flow 5.2% 11.4% 8.1% 5.8% 8.9% 10.2% 9.4% 11.2%

CROIC 19.4% 20.8% 26.2% 16.6% 16.6% 20.8% 26.2% 33.1%

FCF/Sales 29.7% 28.1% 27.2% 30.8% 29.7% 27.8% 27.2% 26.4%

ROA 14.3% 14.3% 16.5% 13.4% 13.4% 14.3% 16.5% 18.6%

ROE 18.8% 18.8% 24.2% 17.1% 17.1% 18.8% 24.2% 33.5%

Revenue Growth 12.1% 13.2% 10.9% 11.6% 11.8% 12.5% 13.4% 9.7%

Gross Margin 82.5% 82.1% 81.7% 83.4% 82.5% 82.1% 82.1% 81.3%

Operating Margin 39.1% 37.2% 36.9% 41.5% 39.1% 36.9% 36.9% 36.4%

Net Margin 28.7% 28.7% 28.0% 29.9% 28.7% 28.0% 28.9% 28.0%

Earnings Growth 7.6% 16.0% 12.5% 5.7% 12.7% 14.9% 15.2% 16.7%

Cash from Ops Growth 3.5% 7.0% 4.0% 3.5% 1.4% 4.2% 6.5% 5.4%

Growing at 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

9% 15,299$ 16,704$ 18,238$ $19,250.88 $20,841.94 $22,564.51 $24,429.44 $24,875.75 $26,726.11 $28,714.11

Terminal Value 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029

3% 29,576$ 30,463$ 31,377$ 32,318$ 33,288$ 34,286$ 35,315$ 36,374$ 37,465$ 38,589$

Total Value

Shares Outstanding 8901

Per Share Value

Margin of Safety

Purchase Price

Current Price

Actual Discount

Enterprise Value

Enterprise Value/EBITDA

50%

13.95$

28.7%

Company Valuation

248,410$

8901

Free Cash Flow and Tangible Shareholder Equity Trend

20.8%

Company Name ticker

Median

27.91$

-9.8%

MSFT

Multi-Year Performance

4.1%

12.0%

Efficiency & Profitability

User Input Params

Financial Data

Margins

Cash Flow Data

Balance Sheet Data

Income Sheet Data

18.8%

Projection of future Free Cash Flow

14.3%

13.8%

82.1%

Microsoft Corp

37.1%

9.2%

Debt Related

27.9%

25.26$

9%

200,930.00$

8.636

$9,290.0 $7,779.0 $8,143.0 $10,541.0 $8,245.0 $12,297.0 $11,924.0 $13,241.0

$16,555.0 $14,012.0

$41,368.0 $47,289.0

$50,511.0 $57,508.0

$71,141.0

$44,307.0

$35,699.0

$25,459.0 $22,205.0

$25,296.0

$-

$10,000.0

$20,000.0

$30,000.0

$40,000.0

$50,000.0

$60,000.0

$70,000.0

$80,000.0

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

FCF Shareholder Equity

Sales, Receivables, Inventory

Efficiency & Profitability Debt

Margin Percentages

Multi-Year Performance Graph

86.9% 86.3%81.7% 82.3% 81.8% 84.4% 82.7%

79.1% 80.8% 79.2%

47.6% 46.3%42.0% 41.1%

24.5%

36.6% 37.2% 36.2% 37.2% 34.8%41.0%

29.0% 27.6%31.0%

22.2%

30.8% 28.5% 27.5% 29.3%24.9%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

90.0%

100.0%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Gross Margin

Operating Margin

Net Margin

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

CROIC FCF/Sales ROA ROE

0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

120.0%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Debt to Equity Capitalization Ratio FCF to Debt

82.5% 82.1% 81.7% 83.4% 82.5% 82.1% 82.1% 81.3%

39.1% 37.2% 36.9% 41.5% 39.1% 36.9% 36.9% 36.4%

28.7% 28.7% 28.0%29.9% 28.7% 28.0% 28.9% 28.0%

7.6% 16.0% 12.5%5.7% 12.7% 14.9% 15.2% 16.7%

14.3%14.3% 16.5% 13.4% 13.4% 14.3% 16.5% 18.6%

18.8%18.8% 24.2%

17.1% 17.1% 18.8%24.2%

33.5%

0.0%

50.0%

100.0%

150.0%

200.0%

250.0%

2000-2007 2001-2008 2002-2009 2000-2005 2001-2006 2002-2007 2003-2008 2004-2009

Gross Margin Operating Margin Net Margin Earnings Growth ROA ROE

$-

$10,000.0

$20,000.0

$30,000.0

$40,000.0

$50,000.0

$60,000.0

$70,000.0

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 TTM

Sales Accts Receivable Inventory

Company Name

Microsoft Corpwww.oldschoolvalue.com Figures in Millions except per share values

Desired MOS Growth Discount % Price Share Value Buy under Actual D/C % 52Wk High 52Wk Low

50% 9.2% 9% 25.26$ 27.91$ 13.95$ 9% 27.66$ 14.87$

Historical Stock Price Vs Intrinsic Value Per Share

ticker

MSFT9/21/2009

0

10

20

30

40

50

60

9/28/1998 9/28/1999 9/28/2000 9/28/2001 9/28/2002 9/28/2003 9/28/2004 9/28/2005 9/28/2006 9/28/2007 9/28/2008

Historical Price Intrinsic Value Buy Price Linear (Historical Price)

9/21/2009 User Growth Figures in Millions except per share values

www.oldschoolvalue.com

Desired MOS Growth Price Actual DC% Share Value Buy under P/B Ratio

66% 13.8% 25.26$ 16% 30.04$ 10.21$ 5.74

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

0.85$ 0.66$ 0.71$ 0.92$ 0.75$ 1.12$ 1.20$ 1.42$ 1.87$ 1.62$

2010 2011 2012 2013

1.62$ 1.85$ 1.86$ 2.15$

2000-2005 2001-2006 2002-2007 2003-2008 2004-2009 2000-2003 2001-2004 2002-2005

Earnings Growth 5.7% 12.7% 14.9% 15.2% 16.7% 2.7% 4.4% 16.4%

EPS Weighted Average 0.84$ 0.89$ 1.02$ 1.21$ 1.33$ 0.79$ 0.76$ 0.88$

2003-2006 2004-2007 2005-2008 2006-2009

Earnings Growth 9.26% 23.71% 18.63% 10.52%

EPS Weighted Average 1.00$ 1.12$ 1.40$ 1.53$

1.01$

13.79%

5.7

4.40

5.74

22.57

30.04$

66.00%

10.21$

25.26$

16%

$1.01

13.8%

Enterprise Value Per Share

Company Stats

Normal Earnings

Expected 5 Year Growth

20 yr A Corp Bond Rate

Median (1998-2007)

Actual Discount

Company Name ticker

Microsoft Corp MSFT

Earnings

Multi-Year Performance

User Input ParamsNet Net Working Capital

0.21$

Diluted EPS

Purchase Price

Current Price

Company Valuation

Per Share Value

Desired MOS

Book Value Per Share

Price to Book Ratio

$0.85

$0.66 $0.71

$0.92

$0.75

$1.12 $1.20

$1.42

$1.87

$1.62 $1.62

$1.85

$-

$0.20

$0.40

$0.60

$0.80

$1.00

$1.20

$1.40

$1.60

$1.80

$2.00

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

EPS Linear (EPS)

Old School Value | http://www.oldschoolvalue.com

Company NameCompany Name ticker

Microsoft Corp MSFTFigures in Millions except per share values

EPV Current Price MOS % Tangible BV NNWC

24.36$ 25.26$ 0% 3.09$ 0.56$

Quarterly numbers based on: 2009 Q4 Data Source

Statement Source Date: 30-Jul-09 MSN

Assets Book Value

Adjust

+/- Multiplier

Reproduction

Asset Value 2003 2004 2005 2006 2007 2008 2009 TTM

Cash & Equivalents 31,447.0$ 31,447.0$

CAPEX

(statements) 891.0$ 1,109.0$ 812.0$ 1,578.0$ 2,264.0$ 3,182.0$ 3,119.0$ 3,119.0$

Marketable Securities 25,371.0$ 25,371.0$ Last 6 yrs

Accounts Receivable - Gross 11,192.0$ 11,192.0$ Last 5 yrs

Other Receivable -$ -$ Last 4 yrs

Receivables 11,192.0$ 11,192.0$ Last 3 yrs 2,764.0$ 2,770.0$ 2,812.0$ 3,499.0$ 4,654.0$ 7,024.0$ 8,565.0$ 9,420.0$

Inventories: Raw Materials 170.0$ Last 2 yrs 1,661.0$ 2,000.0$ 1,921.0$ 2,390.0$ 3,842.0$ 5,446.0$ 6,301.0$ 6,238.0$

Inventories: Work in Progress 45.0$ Last 1 yr 891.0$ 1,109.0$ 812.0$ 1,578.0$ 2,264.0$ 3,182.0$ 3,119.0$ 3,119.0$

Inventories: Purchased

Components -$ PPE 2,223.0$ 2,326.0$ 2,346.0$ 3,044.0$ 4,350.0$ 6,242.0$ 7,535.0$ 7,535.0$

Inventories: Finished Goods 502.0$ Sales 32,187.0$ 36,835.0$ 39,788.0$ 44,282.0$ 51,122.0$ 60,420.0$ 58,437.0$ 58,437.0$

Inventories: Other -$ R&D 4,659.0$ 7,779.0$ 6,184.0$ 6,584.0$ 7,121.0$ 8,164.0$ 9,010.0$ 9,010.0$

Inventories -- Total 717.0$ 717.0$

Prepaid Expenses -$ -$

Current Defered Income Taxes 2,213.0$ 2,213.0$

Other Current Assets 5,924.0$ 5,924.0$

Total Current Assets 51,493.0$ 51,493.0$

Goodwill, Net 12,503.0$ 50% 6,251.5$

Intangibles, Net 1,759.0$ 1,759.0$

Intangibles 14,262.0$ 8,010.5$

Property/Plant/Equipment - Net 7,535.0$ 7,535.0$

Long Term Investments 4,933.0$ 4,933.0$

Note Receivable - Long Term -$ -$

Other Long Term Assets, Total 1,878.0$ 1,878.0$

Total Assets 80,101.0$ 68,916.5$

Liabilities & Equity Book Value Corrected BV Multiplier

Reproduction

Asset Value

Accounts Payable 3,324.0$ 3,324.0$

Accrued Expenses 3,156.0$ 3,156.0$

Accrued Liabilities -$ -$

Notes Payable/Short Term Debt 2,000.0$ 2,000.0$ Total Per Share Shares Outstanding 8901.0 8901

Current Port. of LT Debt/Capital

Leases -$ -$ Tangible BV 27,509$ 3.09$

Balance Sheet Assets 80,101.0$

Other Current Liabilities 18,554.0$ 18,554.0$ Adjusted BV 30,587$ 3.44$ Adjusted Assets 68,916.5$

Total Current Liabilities 27,034.0$ 27,034.0$ NNWC 5,026$ 0.56$ Total Liabilities 38,330.0$

Long-Term Debt 3,746.0$ 3,746.0$

Reprod. Cost of

Assets 104,043$ 11.69$ Total Equity 41,771.0$

Capital Lease Obligations -$ -$

Reprod. Cost of

Assets BV 65,713$ 7.38$

Deferred Income Taxes -$ -$

Total Net

Reprod. Cost 41,181$ 4.63$ 17,631.3$

Minority Interest -$ -$ 17,495.2$

Total Other Liabilities 7,550.0$ 7,550.0$

Total Liabilities 38,330.0$ 38,330.0$ Cash Needed for Business 584.4$

Common Stock Equity 39,558.0$ 39,558.0$ Interest Bearing Debt 5,746.0$ Retained Earnings (22,824.0)$ (22,824.0)$ Non Interest Bearing Debt 32,584.0$

Total Capitalization 43,304.0$ 43,304.0$ Excess Cash 30,278.3$

Total Equity 39,558.0$ 41,771.0$

Total Liabilities & Stock Equity 77,888.0$ 77,888.0$

Marketing/Brand Value

R&D Value

9/21/2009 User Discount %

9%

Discount Rate % Net Reprod. Cost

9% $4.63

Reproduction Asset Value

Asset Valuation Asset Valuation Data

$-

$1,000.0

$2,000.0

$3,000.0

$4,000.0

$5,000.0

$6,000.0

$7,000.0

$8,000.0

$9,000.0

$10,000.0

2003 2004 2005 2006 2007 2008 2009 TTM

Last 6 yrs

Last 5 yrs

Last 4 yrs

Last 3 yrs

Last 2 yrs

Last 1 yr

PPE

Old School Value | http://www.oldschoolvalue.com

Period End Date 30-Jun-05 30-Jun-06 30-Jun-07 30-Jun-08 30-Jun-09 30-Sep-08 31-Dec-08 31-Mar-09 30-Jun-09

Period Length 12 Months 12 Months 12 Months 12 Months 12 Months 3 Months 3 Months 3 Months 3 Months

Statement Source 10-K 10-K 10-K 10-K 10-K 10-Q 10-Q 10-Q 10-K

Income Statement 2005 2006 2007 2008 2009 2009 Q1 2009 Q2 2009 Q3 2009 Q4 TTM User Input

Sales 39,788$ 44,282$ 51,122$ 60,420$ 58,437$ $15,061.0 16,629.0$ 13,648.0$ 13,099.0$ 58,437.0$

EBIT 16,628.0$ 18,262.0$ 20,101.0$ 23,814.0$ 19,821.0$ $5,927.0 $5,690.0 $3,999.0 $3,937.0

Add back one time charges

EBIT Margin 41.8% 41.2% 39.3% 39.4% 33.9% 39.4% 34.2% 29.3% 30.1% 33.5%

EBIT at user defined % of sales -$

EBIT User Defined % Margin 41.8% 41.2% 39.3% 39.4% 33.9% 39.4% 34.2% 29.3% 30.1% 33.5%

Normalized EBITDA 17,755.0$ 18,782.0$ 19,874.0$ 24,143.0$ 22,984.0$ $6,584.0 6,571.0$ 5,392.0$ 4,708.0$ 23,255.0$

Normalized EBIT 16,871.0$ 17,792.0$ 18,438.0$ 22,271.0$ 20,693.0$ $5,999.0 5,939.0$ 4,728.0$ 4,027.0$ 20,693.0$

SG&A 2,697.3$ 3,064.0$ 3,717.5$ 4,596.8$ 4,144.8$ $982.8 982.8$ 1,123.3$ 973.5$ 4,062.3$

R&D 1,524.3$ 1,646.0$ 1,780.3$ 2,041.0$ 2,252.5$ $570.8 570.8$ 572.5$ 553.0$ 2,267.0$

Adjusted EBIT 20,849.5$ 22,972.0$ 25,598.8$ 30,451.8$ 26,218.3$ $7,480.5 7,243.5$ 5,694.8$ 5,463.5$ 25,882.3$

Adjusted EBIT % 52.4% 51.9% 50.1% 50.4% 44.9% 49.7% 43.6% 41.7% 41.7% 44.3%

Income Before Tax 16,628.0$ 18,262.0$ 20,101.0$ 23,814.0$ 19,821.0$ $5,927.0 5,690.0$ 3,999.0$ 3,937.0$ 19,553.0$

Income Tax - Total 4,374.0$ 5,663.0$ 6,036.0$ 6,133.0$ 5,252.0$ $1,618.0 1,464.0$ 1,073.0$ 1,097.0$ 5,252.0$

Tax Rate 26.3% 31.0% 30.0% 25.8% 26.5% 27.3% 25.7% 26.8% 27.9% 26.9%

Adjusted Earnings After tax 15,365.0$ 15,848.4$ 17,911.9$ 22,609.3$ 19,271.2$ $5,438.4 5,379.79$ 4,166.75$ 3,941.16$ 18,926.1$

Depreciation & Amortization 884.0$ 990.0$ 1,436.0$ 1,872.0$ 2,291.0$ $585.0 632.0$ 664.0$ 681.0$ 2,562.0$

Add user defined % of D&A 176.8$ 198.0$ 287.2$ 374.4$ 458.2$ $117.0 126.4$ 132.8$ 136.2$ 512.4$

Income as Adjusted 15,541.8$ 16,046.4$ 18,199.1$ 22,983.7$ 19,729.4$ $5,555.4 5,506.2$ 4,299.6$ 4,077.4$ 19,438.5$

Income as Adjusted % 39.1% 36.2% 35.6% 38.0% 33.8% 36.9% 33.1% 31.5% 31.1% 33.3%

Operating Income as Reported 14,561.0$ 16,472.0$ 18,524.0$ 22,492.0$ 20,363.0$ $5,927.0 5,677.0$ 4,018.0$ 3,987.0$ 19,609.0$

2005 2006 2007 2008 2009 TTM Average

PPE as a % of Sales 5.9% 6.9% 8.5% 10.3% 12.9% 12.9%

Sales Growth (decrease) to Prior

Year 2,953.0$ 4,494.0$ 6,840.0$ 9,298.0$ (1,983.0)$ -$

Capex 812.0$ 1,578.0$ 2,264.0$ 3,182.0$ 3,119.0$ 3,119.0$ 2,191.0$

Maintenance Capex 637.9$ 1,269.1$ 1,682.0$ 2,221.4$ 3,119.0$ 3,119.0$ 2,008.1$

Depr & Amort 855.0$ 903.0$ 1,440.0$ 2,056.0$ 2,562.0$ 2,562.0$ 1,729.7$

2005-2006 2006-2007 2007-2008 2008-2009 2009-TTM

3.2% 13.4% 26.3% -14.2% -1.5% 19,259.5$

15,794.1$ 17,122.8$ 20,591.4$ 21,356.5$ 19,583.9$ 18,500.1$

19,438.5$

2005-2007 2006-2008 2007-2009 2008-TTM

8.2% 19.7% 4.1% -8.0%

16,595.8$ 19,076.4$ 20,304.0$ 20,717.2$ 9%

19,259.5$

2005-2008 2006-2009 2007-TTM 2,008.1$

12.7% 2.7% -5.4% 5,746$

18,192.8$ 19,239.6$ 20,087.7$ 584.37$

31,447$

2005-2009 2006-TTM 25,116.63$

6.1% 4.9% 8901

18,500.1$ 19,279.4$

EPV Per Share

+Cash-Debt

Adjustment Per Share

345,029.3$ 38.76$ 370,145.9$ 41.58$

246,449.5$ 27.69$ 271,566.1$ 30.51$

191,682.9$ 21.53$ 216,799.6$ 24.36$ 156,831.5$ 17.62$ 181,948.1$ 20.44$

132,703.6$ 14.91$ 157,820.2$ 17.73$

19,553.0$

Earnings Power Value (EPV)

5 Year Annual Data Past 4 Quarterly Data

Multiyear Timeframe Adjusted

Income & Growth

Normalized Adjusted Income Possible Values for Override Box

$19,259.5

Normalized Income

Avg Adj. Income 5 yrs

TTM Adjusted Income

EPV Data

Cost of Capital

Normalized Adjusted IncomeNormal. Adj. Income Growth Average Maintenance Capex

4.5% Interest Bearing Debt

1% of sales

Cash & Equiv

Cash - Debt

Shares

Cost of Capital Rates

5%

7%

9%11%

13%

Company Name

Microsoft Corp MSFT9/21/2009

MSFT Industry Ranking

Stock Price 25.26 NA NA

Market Cap (millions) 225,080 NA NA

52-Week High 27.66 NA NA

52-Week Low 14.87 NA NA

% off 52-Week Low 69.9% NA NA

Valuation Ratios

P/E Ratio (TTM) 15.59 15.1 1

Price to Sales (TTM) 3.85 0.76 1

Price to Book (MRQ) 5.69 3.49 1

Price to Tangible Book (MRQ) 8.9 7.89 1

Price to Cash Flow (TTM) 13.14 4.79 1

Price to Free Cash Flow (TTM) 19.66 17.56 1

Enterprise Value/Revenue (TTM) 3.44 NA NA

Enterprise Value/EBITDA (TTM) 8.636 NA NA

Dividends

Dividend Yield 2.06 0.13 1

Dividend Yield - 5 Year Avg. 3.96 1.94 1

Dividend 5 Year Growth Rate 26.58 14.58 1

Payout Ratio (TTM) 31.71 31.97 1

Growth Rates

Sales (MRQ) vs Qtr. 1 Yr. Ago -17.29 -9.37 1

Sales (TTM) vs TTM 1 Yr. Ago 3.85 0.76 1

Sales - 5 Yr. Growth Rate 9.67 9.17 1

EPS (MRQ) vs Qtr. 1 Yr. Ago -25.55 -0.57 1

EPS (TTM) vs TTM 1 Yr. Ago -13.36 0 1

EPS - 5 Yr. Growth Rate 16.65 3.21 1

Capital Spending - 5 Yr. Growth Rate 22.98 29.2 1

Financial Strength

Quick Ratio (MRQ) 1.8 2.31 1

Current Ratio (MRQ) 1.82 2.48 1

LT Debt to Equity (MRQ) 9.47 12.48 1

Total Debt to Equity (MRQ) 14.53 18.85 1

Profitability

Gross Margin (TTM) 79.2 16.86 1

Gross Margin - 5 Yr. Avg. 81.06 53.89 1

EBITD Margin (TTM) 37.94 0 1

EBITD - 5 Yr. Avg. 38.98 24.86 1

Operating Margin (TTM) 33.56 4.49 1

Operating Margin - 5 Yr. Avg. 36.03 20.67 1

Pre-Tax Margin (TTM) 33.92 4.22 1

Pre-Tax Margin - 5 Yr. Avg. 38.82 21.88 1

Net Profit Margin (TTM) 24.93 2.82 1

Net Profit Margin - 5 Yr. Avg. 28.01 13.27 1

Management Effectiveness

Return On Assets (TTM) 19.34 2.16 1

Return On Assets - 5 Yr. Avg. 19.63 9.83 1

Return On Investment (TTM) 31.08 3.17 1

Return On Investment - 5 Yr Avg 28.63 14.41 1

Return On Equity (TTM) 38.42 3.84 1

Return On Equity - 5 Yr. Avg. 33.44 15.86 1

Efficiency

Revenue/Employee (TTM) 628355 11774941 NA

Net Income/Employee (TTM) 156656 348136 NA

Receivable Turnover (TTM) 4.72 2.83 NA

Inventory Turnover (TTM) 14.28 3.32 NA

Asset Turnover (TTM) 0.78 0.3 1

ticker

all figures in $Mil Enter Competitor Tickers Into Boxes Below

Company Name

Microsoft Corp www.oldschoolvalue.com

Figures in Millions except per share values

TTM 2009/06 2008/06 2007/06 2006/06 2005/06 2004/06 2003/06 2002/06 2001/06 2000/06 TTM 2009/06 2008/06 2007/06 2006/06 2005/06 2004/06 2003/06 2002/06 2001/06 2000/06

25% 25% 29% 28% 28% 31% 22% 31% 28% 29% 41% 16462 19037 21612 17796 14404 16605 14626 15797 14509 13422 13961

% Change -14.8% 6.4% -3.3% -7.6% 38.9% -28.6% 12.5% -5.0% -29.2% -- % Change -11.9% 21.4% 23.5% -13.3% 13.5% -7.4% 8.9% 8.1% -3.9% --

Now 2009/06 2008/06 2007/06 2006/06 2005/06 2004/06 2003/06 2002/06 2001/06 2000/06 Now 2009/06 2008/06 2007/06 2006/06 2005/06 2004/06 2003/06 2002/06 2001/06 2000/06

0.59 0.59 0.82 0.72 0.47 0.38 0.16 0.29 0.32 0.39 0.46 11.5% 12.4% 11.9% 7.8% 9.0% 7.1% 5.5% 7.7% 7.2% 4.6% 3.9%

% Change -28.4% 14.1% 54.0% 21.5% 136.7% -43.2% -10.0% -18.8% -14.7% -- % Change 3.9% 52.9% -13.7% 27.9% 28.4% -28.9% 6.7% 58.0% 17.1% --

2009/06 2009/06 2008/06 2007/06 2006/06 2005/06 2004/06 2003/06 2002/06 2001/06 2000/06 2009/06 2009/06 2008/06 2007/06 2006/06 2005/06 2004/06 2003/06 2002/06 2001/06 2000/06

19% 19% 24% 22% 18% 17% 9% 13% 12% 13% 18% 36.8% 36.8% 48.7% 45.2% 31.4% 25.5% 10.9% 16.4% 15.0% 16.3% 22.8%

% Change -23.0% 9.0% 23.2% 4.6% 96.6% -30.2% 8.6% -10.8% -28.2% -- % Change -24.4% 7.7% 43.9% 23.1% 133.9% -33.5% 9.3% -8.0% -28.5% --

2009/06 2009/06 2008/06 2007/06 2006/06 2005/06 2004/06 2003/06 2002/06 2001/06 2000/06 2009/06 2009/06 2008/06 2007/06 2006/06 2005/06 2004/06 2003/06 2002/06 2001/06 2000/06

1.8 1.8 1.4 1.7 2.2 2.9 4.7 4.2 3.8 3.6 3.1 1.8 1.8 1.4 1.6 2.1 2.9 4.7 4.2 3.8 3.6 3.1

% Change 26.0% -14.4% -22.6% -24.4% -38.7% 11.7% 10.7% 7.1% 14.6% -- % Change 27.0% -14.0% -22.4% -25.9% -39.0% 12.3% 11.1% 5.6% 14.6% --

Return on Assets (ROA) Return on Equity (ROE)

Current Ratio Quick Ratio

9/21/2009

ticker

MSFT

Net Profit Margin Cash Flow (Continuing Operations)

Magic Formula Investing -- Return on Capital Magic Formula Investing -- Earnings Yield

25% 25%29% 28% 28%

31%

22%

31%28% 29%

41%

1646219037

21612

17796

1440416605

1462615797

14509 13422 13961

0.59 0.59

0.820.72

0.470.38

0.16

0.29 0.320.39

0.46

11.5%12.4% 11.9%

7.8%9.0%

7.1%5.5%

7.7% 7.2%

4.6% 3.9%

19% 19%

24%22%

18% 17%

9%

13% 12%13%

18% 36.8% 36.8%

48.7%45.2%

31.4%25.5%

10.9%16.4% 15.0% 16.3%

22.8%

1.8 1.81.4

1.72.2

2.9

4.7 4.23.8

3.63.1

1.8 1.81.4 1.6

2.1

2.9

4.7 4.23.8 3.6

3.1

9/21/2009 www.oldschoolvalue.com Figures in Millions except per share values

Criteria over 10yrs Value Points User Points

> 25% or 50% depending on

moat9% 0

> 66% 16% 0

Criteria over 10yrs Value Points User Points

10% 12.0% 1

30% 82.1% 2

15% 37.1% 2

10% 28.7% 2

10% 13.8% 1

Criteria over 10yrs Value Points User Points

15% 4.1% 0

13% 20.8% 2

10% 9.2% 0

7% 27.9% 2

Consistent over 10yrs N/A N/A

Consistent over 10yrs N/A N/A

Criteria for TTM Value Points User Points

> 1.5 x current liabilities 1.8 1

N/A 5.74 N/A N/A

< 100% 96.9% 1

> 10% 36.6% 2

< 30% 9% 2

< 15% of assets 18.3% 0

User Points Max Points

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User Points Max Points

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max 1

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Comment

Intangibles % of assets

Company Assessment: Qualitative

Microsoft Corporation is engaged in developing, manufacturing, licensing, and supporting a range of software products and services for

different types of computing devices. The Company operates in five business segments: Client, Server and Tools, Online Services

Business, Microsoft Business Division, and Entertainment and Devices Division. The software products and services include operating

systems for servers, personal computers, and intelligent devices; server applications for distributed computing environments;

information worker productivity applications; business solutions applications; computing applications; software development tools, and

video games. The Company provide consulting and product and solution support services, and trains and certifies computer system

integrators and developers. It also designs and sells hardware, including Xbox 360 video game console, the Zune digital music and

entertainment device, and peripherals.

Median Revenue growth

Debt to Equity

FCF to Debt

Capitalization Ratio

Price to Book ratio < 2

Cash growth from Operations

Company Name

Microsoft Corp

Company Assessment: Quantitative

MSFT

ticker

Median FCF growth positive and consistent

Balance Sheet

Valuation

DCF Valuation Discount

Graham Intrinsic Value Discount

Margins, Profit and Growth

Current assets > 1.5 x current liabilities

Median FCF/Sales

Consistent ROE (manually check)

Consistent ROA (manually check)

Median Gross Margin

Median Operating Margin

Median Net Margin

Median EPS growth

Business and Management Performance

CROIC is postive and capable of paying off financing

Competitive Advantage

Stable market share?

Dominant company in industry, segment?

Low barriers to entry and exit?

Experience goods (brand effect, trademarks)

High switching costs?

Network effect? E.g. eBay

Business Model

Growth due to:

a) existing product / existing market (yes/no)

b) existing product / new market (yes/no)

c) new product / existing market (yes/no)

d) new product / new market (yes/no)

Able to increase prices and retain customers?

Compete on price? (1 for no, 0 for yes)

Barriers of entry to the business?

Diverse customers? (1 for diverse, 0 for concentrated)

Involved in competition? Monopoly, duopoly, crowded

Company has a recurring revenue stream?

Capital intensive company? (1 for no, 0 for yes)

Comment

a) Yes

b) Yes

c) Yes

d) No

User Points Max Points

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User Points Max Points

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Total Points out of 5

0.0

4.0

2.0

3.0

0.0

0.0

0.0

Low Risk High Growth Under Valued Well Managed Good Financial Health Strong Moat

3.7 2.0 2.5 3.5 3.5 4.0

3.7 2.0 2.5 3.5 3.5 4.0

Do I have an exit plan?

Competitive Advantage

Business Model

Management

Category

Valuation

Margins, Profit and Growth

Business and Management Performance

Balance Sheet

Bias from commitment and consistency tendency?

Pavlovian association?

Social proof bias?

Status quo bias?

False consensus bias?

Am I too overconfident on the situation?

Performed probability analysis for -ve factors?

Too much loss aversion?

Sunk cost mentality?

Slow in changing opinion?

Psychological denial ?

Psychological Factors to Consider. Not Weighted.

Recency bias?

Hindsight bias?

Framing issues correctly and in different manners?

Is there a data framing bias?

Management

High insider ownership?

Candid management on positives and negatives?

Management performance at previous jobs?

Compensation levels compared to sales?

Industry

Boring industry? (1 for slow, 0 for fast industry)

Can company adapt to changing industry environment?

Industry leader or lagger? (1 for leader, 0 for lagger)

no

no

no

no

DCF, graham, compare to peers

maybe

no

no

no

no

no

Comment

Comment

Comment

no

no

no

no

0.0

1.0

2.0

3.0

4.0

5.0Low Risk

High Growth

Under Valued

Well Managed

Good Financial Health

Strong Moat